Monthly Archives: November 2019

In this blog we will explore when we should, and should not, pursue collaborative contracts. We must remind ourselves that collaborative contracts are not binary structures involving either zero collaboration at one of the spectrum, versus an incorporated joint venture or alliance at the other end. Collaboration can take many forms and is a scalable concept that must be tailored to the activity at hand.

Firstly, we only pursue collaborative relationships where
the benefits outweigh the costs. That
is, we have a motive for collaboration.
Cost and benefits though need to be considered in as broad as terms as
possible and not just in terms of contract price. Collaborative benefits may include:

improved prospects for repeat business

continuous improvement and innovation opportunities

increased likelihood for supplier participation

enhanced satisfaction for all employees

improved flexibility

less time wasted on disputes and issues management

Similarly, we also need to explore the ‘hidden costs’
associated with collaboration, which may include:

In summary, we first need to craft a robust business case when
considering collaborative endeavours and ensure this business case is
continually evaluated.

Means

Where collaboration is able to realise superior benefits, then we should explore whether we have the means
to engage in collaborative ventures. We should
ask ourselves if we have the right culture, appetite to risk, and internal
capabilities to realise collaborative benefits.
The United Kingdom National Audit Office offers the following ‘gold
standard’ for enabling positive working relationships.

The Australian Department of Defence Capability Acquisition
Sustainment Group, in their Collaborative
Contracting Better Practice Guide, also
provides guidance to help ‘buy-side’ organisations gain insight into their
ability to pursue collaborative outcomes through the use of a contract maturity
model, which asks the following questions:

Both parties openly discuss “interests and
desired outcomes” throughout the procurement lifecycle commensurate with
the strategic importance of the relationship.

Each contracting party understands the other’s
goals and how to help achieve and quantify them

The contract is viewed as a tool to plan and
track business relationships

Procurement practitioners are viewed as valued
facilitators and integrators of stakeholder interests

Asking yourself, ‘do I have the capacity and capability to
achieve these gold standard or contract maturity model outcomes’
will help you understand whether collaboration is the right step for your
organisation. If the answer is no, then
leaders can take remedial action. Future blogs in this series will explore
strategies to shift organisation capabilities and culture to better enable
collaborative outcomes.

Opportunity

With the means and motive for collaboration established we
now explore whether the right opportunities exist for collaboration. The opportunities for collaboration will be
driven by the commercial model, geography, and market power of buyers and
suppliers. Collaboration will only work
where both buyers and suppliers are committed.
Opportunities for collaboration may be limited in the following
circumstances:

A transactional environment where buyers and
suppliers operate on a ‘take it or leave it basis’.

Inflexible governance arrangements exist
(especially in the public sector) which inhibit the full range of relational
outcomes. This is especially the case where compulsory competitive tendering
rules are too onerous.

Key leaders and managers are unavailable to
support collaborative outcomes.

Pre-existing and inflexible contract structures
prevent the full range of collaboration outcomes. An example of this would be
‘government to government’ contracts such as Foreign Military Sales.

Even where some of these adverse features exist, there still
may be opportunities to engage in some level of collaboration.

When not to use collaborative contracts

Collaborative contracts should never be used where an
organisation lacks the means to effectively implement them. This may stem from an inappropriate
organisational culture or lack of commercial maturity. If an organisation is mostly
‘transactionally’ based, where disputes and issues are normally resolved by
resorting to ‘lawyers at twenty paces’, then that organisation will be unlikely
to engage in effective collaborative relationships.

As we previously discussed, we therefore need to ask ourselves some very hard questions about our internal capabilities and the means to engage in collaborative ventures. This could involve benchmarking the commercial maturity of the organisation through tools such as the International Association of Contract and Commercial Management (IACCM) Capability Maturity Model or undertake a collaborative contract skills assessment under Supplier Relationship Management processes. Organisations may also rely on performance scorecards to benchmark their relationships and skills in collaboration.

There is also an overwhelming temptation to pursue
collaborative contracts to mask systemic failures in an organisation. When
facing failure, the allure of collaboration may be seen as a quick fix. Simply sticking a partnering
charter on an existing contract and hoping for the best will unlikely
create value. Positive relationships and
collaboration are necessary but not sufficient for success. That is,
organisations must still make sure they address the key hygiene factors
before they attempt collaborative contracts. This includes ensuring the
following are addressed:

A clear and shared organisational vision

Leadership commitment

robust commercial skills

A mature Project Management framework

The evidence is clear that collaboration can deliver
fantastic benefits both between and within organisations. We need to ensure we implement collaborative contracts
for the right reasons and understand what barriers exist to successful
implementation. Future blogs will explore collaborative contract case studies
of where things have gone well and where things have failed.